In the wake of a nationwide class action settlement of litigation against a manufacturer of a test claimed to accurately predict the gender of a fetus, the State of California (“State”) brought an enforcement action against the manufacturer for restitution for California citizens who purchased the test, as well as for civil penalties and injunctive relief.  The defendant manufacturer removed to federal court and sought an injunction under the Anti-Injunction Act, arguing that the State’s action was barred by the settlement.  The federal district court denied the injunction.  The Ninth Circuit appeals affirmed in part and reversed in part, finding that State could proceed with its claims for penalties and injunctive relief, but could not seek restitution on behalf of citizens bound by the settlement.

In so holding, the Ninth Circuit noted that the Anti-Injunction Act allows the court to issue an injunction “where necessary to protect or effectuate the federal court’s judgments.”  This “relitigation” or “res judicata” exception requires that the federal suit (a) reached a final judgment on the merits; (b) involved the same cause of action or claims; and (c) involved identical parties or privies.  Finding that the first two requirements were met, the Court focused on the issue of privity.

In finding an absence of privity with respect to the claims for injunctive relief and penalties, the Court distinguished between situations where the State, acting in its sovereign capacity, asserts public interests and situations where it asserts interests that are private, as when it seeks restitution for its citizens.  The Court acknowledged the tension between CAFA and state laws, stating that while a settlement under CAFA serves an important interest, “a sovereign’s ability to bring enforcement actions against private parties that violated the law serves equally if not more important public interests.”  The Court thus concluded that a “CAFA class action settlement, though approved by the district court, does not act as res judicata against the State acting in its sovereign capacity.”  The State was thus free to pursue its “public interest” rights to injunctive relief and civil penalties.

However, the Court found that claims for restitution to the State’s citizens, having already been pursued and obtained in the CAFA settlement, satisfy the requisite closeness of interest for privity, and may not be pursued again by the State.  In so holding, the Court emphasized that as part of the district court’s approval of the nationwide class settlement, the State received a CAFA notice, but chose not to participate in the approval process.  Commenting on the obvious risk of double recovery for the purchasers of the IntelliGender test, the court stated:  “[a]llowing the State’s claims for restitution to go forward in state court would undermine this central guarantee of our legal system and undercut CAFA’s purpose of increasing the fairness and consistency of class actions.”

State of California v. IntelliGender, LLC, No. 13-56806 (9th Cir. Nov. 7, 2014).